Mortgage And Insurance Terminology

Mortgage & Insurance Dictionary

Here at Mortgage Solutions, we are constantly striving to ‘Make Mortgages Easy’. In a market place that is rife with abbreviations and acronyms, cutting through the confusing terminology is paramount to be able to give you the right advice for your circumstances.

Our experienced Mortgage Advisers always endeavour to give clear and easy to understand guidance throughout the entire process. However, we also understand that the paperwork needed to get your mortgage product or insurance policy completed and agreed can still contain puzzling terms.

We have therefore created a ‘jargon-busting’ guide to give you the tools to decipher any baffling terms you come across. Remember, we are always only a phone call away if you would prefer to talk through anything!

Mortgage & Insurance Terminology:

AIP: Stands for ‘Agreement in principle’. Issued by a mortgage lender, this document confirms that you can borrow a certain amount. This can help you by proving to a seller that you can afford to buy their property. This is also known as a ‘Decision in Principle’.

APR: Stands for ‘Annual Percentage Rate’. This figure is the interest rate applied to the mortgage loan for a whole year, rather than just a monthly fee.

Arrangement fee: This is the fee payable to set up your mortgage loan, and can include a variety of different charges. Some mortgage lenders will allow you to add this fee to the loan, but this will mean you pay interest on it for the duration of the mortgage. This is an important part of choosing a mortgage as they can range from zero to thousands of pounds.

Arrears: This is the term used for a debt that is overdue, usually after missing a required payment. If you regularly fall into arrears you are at risk of damaging your credit score (see below) or even losing your home.

Base rate: This is the basic rate of interest set by the Bank of England which is used to ‘base’ some mortgage deals on. Mortgages such as trackers are set at a certain percentage above the base rate. Lenders’ standard variable rates – SRVs (see below) are also determined by the base rate.

Booking fee: A mortgage ‘set up’ fee that is sometimes included in the arrangement fees.

Bridging finance: A loan that is taken out to ‘bridge’ the gap between the purchase of a new property and the sale of an existing one. They are generally short-term and secured on the existing property, but repaid as soon as this is sold. They can be expensive and if the sale of your existing property falls through, you will be left paying two loans at once.

Buildings insurance: Insurance required by lenders that covers you for the total cost of rebuilding it, including its fixtures and fittings.

Buy-to-let: This term describes a property that is specifically bought for the purpose of letting it to tenants. You will need a buy-to-let mortgage to purchase a property for this purpose. These mortgages tend to be more expensive than a residential mortgage, require a higher deposit (25%) and can incur additional stamp duty costs (see below).

Capital: This is the mortgage loan amount you need to borrow to buy a property.

Capped rate: If your mortgage deal includes a capped rate, this means that the interest rate charged will never exceed this level, regardless of changes to the base rate.

Contents insurance: Insurance that protects your household goods and personal property.

Conveyancing: This is the legal process of buying or selling a property (the transfer of ownership of land). This can be carried out by either a solicitor or conveyancer.

Credit score:. You can get a copy of your credit report from Equifax here.

Critical illness insurance: This insurance pays out a lump sum if you’re diagnosed with a specified critical illness such as cancer, stroke or heart attack. You can use the cash payout to clear your mortgage, pay for medical treatment or anything else you choose.

Deeds release or exit fee: Lenders may charge a fee to release the deeds of a mortgaged property to you or a new lender.

Deposit: This is the amount you have agreed to put towards the initial cost of the property you are buying. Currently, the minimum you will usually need is 5%, better deals are available with a deposit of around 40%. If you are struggling to raise a deposit, see our shared ownership guide.

DIP: Stands for ‘Decision in Principle’. See AIP above

Discounted rate mortgage: These mortgages offer a discount on the lender’s standard variable rate for a period of time before switching to the full SVR. Your monthly payments can go up or down. These mortgages can offer a gentler start to your mortgage, but you must be confident you can afford the payments when the discount ends and the rate increases.

Early Repayment Charge: Some lenders offer mortgage deals that include a charge if you want to repay some, or all of your mortgage off before the end of the full mortgage term. This can also apply if you want to transfer to another mortgage deal before the end of your current mortgage term.

Equity: This is the difference between the value of a property and the money you owe on it. If a property is valued at £150,000 and you have a mortgage of £100,000, you would have £50,00 of ‘equity’ in your property.

Equity release scheme: These schemes allow older homeowners (generally 55+ years) to release the cash (equity) tied up in their property. There are two types: lifetime mortgages and home-reversion. For further information see our equity release guide.

Fixed-rate mortgage: This is a mortgage deal that offers a fixed interest rate over a specific period of time, most commonly between two and five years. They can benefit borrowers as they offer the security of fixed monthly repayments.

Flexible mortgages: These type of mortgage allow you to overpay, underpay or even take a payment ‘holiday’ if needed, although any unpaid interest will be added to the outstanding mortgage loan. Conversely, any overpayments will reduce it. Some schemes also offer the facility to draw down additional funds up to a pre-agreed limit.

Government-backed schemes: Over recent years the government has backed a number of schemes, such as ‘Help to Buy’, to support homebuyers. We can explain the details of these schemes and whether you can benefit from them.

Guarantor: This term relates to a person (most frequently a parent of a child) who guarantees to meet the mortgage repayment if the original borrower is unable or unwilling to repay the loan.

Higher Lending Charge: Although less common these day, these fees are sometimes charged by lenders if you are borrowing a high percentage of the properties value, normally around 75% - 90%. (See loan to value below).

Income protection: This can replace part of your income if you’re unable to work for a long time because of illness or disability. It will pay out until you return to work, the policy ends or in the event of your death. These plans usually have a waiting period before the benefit becomes payable, the longer the waiting period you choose, the lower the monthly premium.

Interest-only mortgage: This type of mortgage is designed so that the borrower only pays the interest on the mortgage amount borrowed. This means that your monthly repayments will be lower than that of a repayment mortgage, but that your mortgage balance will not reduce and you will still need to repay this at the end of the term.

Key facts illustration: This document sets out all of the key details of the mortgage being offered to a borrower showing exactly what costs & penalties are involved. When a lender or mortgage adviser recommends a mortgage to you, they must provide a key facts illustration.

Landlords insurance: This will protect your property while it’s rented out. This can cover the building itself, any contents belonging to you as the landlord, and your legal liabilities as a property owner.

Legal costs and fees:  The fees charged by a solicitor include the charge for conveyancing (the transfer of ownership of land) and the costs of legal registrations and miscellaneous costs (known as disbursements) such as Local Search fees and Land Registry fees. Some lenders may offer to finance some or all of the legal costs as an incentive.

Life insurance: If you die unexpectedly, a Life Insurance policy will pay out a cash sum to your family.

Lifetime mortgages:  See equity release schemes above.

Loan to value (LTV): This figure is the percentage of the property price that you borrow as a mortgage. For example, if you borrow £75,000 on a property valued at £100,000, this is an LTV of 75%.

Monthly repayment: This is the amount you pay your mortgage lender each month. If you have a repayment mortgage, the payment will combine a percentage of your mortgage capital plus the interest. If you have an interest-only mortgage, the payment will be just interest.

Mortgage payment protection insurance: MPPI helps you keep up your mortgage repayments if you can’t work because of redundancy, accident or ill-health. Benefits are usually paid for 12 months, although some providers offer 24 months’ cover for accident and sickness only.

Mortgage term: This is basically the length of time that you agree to pay off the mortgage loan, most commonly 25 years, but it can range from 5 to 40 years, depending on age and circumstances.

Negative equity: This is a situation when the amount you owe on your mortgage is higher than the value of your property. This most commonly occurs after a sudden drop, or ‘crash’, in the value of property. It particularly becomes a problem if you want to move house whilst you are in a negative equity situation.

Offset mortgage: This type of mortgage allows borrowers to ‘offset’ their savings, and sometimes their current account, against their mortgage to reduce your mortgage balance and the interest you pay on it. For example, with a credit balance of £15,000 and a £75,000 offset mortgage, you will only pay interest on the £60,000 difference.

Overpayments: This is where borrowers make additional mortgage payments over and above their regular monthly payment. This can result in paying less interest overall on your mortgage and shortening the time it takes to pay off your mortgage loan in full. Lenders will often allow you to make overpayments of up to 10% every year on your mortgage without a penalty.

Portability: A type of mortgage that allows you to move from one property to another and move your mortgage with you, without paying additional arrangement fees.

Remortgaging: This is the process of arranging a new mortgage deal to begin when your current mortgaged deal comes to the end of its term. Read more about Remortgaging.

Repayment mortgage: This type of mortgage is where your monthly payments include both interest as well as a portion of the mortgage loan (capital).  Whilst your monthly payments are normally higher than the equivalent interest-only mortgage, by the end of the mortgage term you will no longer owe the lender anything. (Provided you have kept up your repayments).

Serious illness cover: Insurance that pays out a cash lump sum of between 5% and 100% of the total cover depending on the severity of the illness.

Shared ownership: You buy a share of a property and pay rent on the remaining share, which is owned by a housing association. You can increase your share over time until you own the property outright. Can be used to help with a deposit. Read our shared ownership guide.

Stamp duty: Stamp duty is a tax that is payable when you buy a residential property in the United Kingdom. First-time buyers are allowed to purchase a home up to £300,000 before paying stamp duty. There are different rates for second properties and buy-to-let homes.

Survey: Before giving you a mortgage, your lender will instruct a survey to confirm the price you’re paying for the property is appropriate. The 3 most common types are; Basic Valuation - for the lender to confirm the property is worth the sale price, Homebuyer’s report – a brief summary of the property’s condition, defects and it’s marketability, and Full structural survey – a detailed examination of the property.

Tracker mortgage: These mortgage deals are typically linked to the Bank of England base rate (see above) or another chosen base rate, and will fluctuate as they ‘track’ at a certain percentage above that rate of interest. They are usually set for a period of 2 to 3 years and you may have to pay a penalty to leave the lender, especially during the tracker period.

Variable-rate mortgage:  This type of mortgage fluctuates in line with a Standard Variable Rate (SVR) of interest set by the lender. You probably won’t get penalised if you decide to change lenders and you may be able to make overpayments without penalty too.

Valuation fee: Lenders may ask you to pay the valuation fee. The type of valuation you choose will depend on factors such as the age and condition of the property.

Valuation survey: Mortgage lenders will always carry out a valuation survey to check whether the property you want to buy is worth the amount you are paying for it. You should consider having your own survey carried out to make sure there are no hidden problems that do not become apparent until after you own the home.

 

Mortgage Solutions NI has been trading since 2005 and currently have over 70 mortgage advisers across Northern Ireland. We have delivered over 4000 mortgages totalling over £400 million in lending and protected over 2,300 customers in the last 12 months. We can access over 2,000 mortgages from over 50 of the top UK lenders and have access to special mortgage deals not available on the high street.

Please do not hesitate to contact us today to arrange a meeting or call with one of our experienced mortgage advisers, they are always happy to help with any questions!

Call us today on 028 9182 8255 or use our branch finder to find your nearest adviser.

 

Your home may be repossessed if you do not keep up repayments on your mortgage

You will need to take legal advice before releasing equity from your home as Lifetime Mortgages and Home Reversion plans are not right for everyone.  This is a referral service.

Call us today on 028 9182 8255 or use our branch finder to find your nearest adviser.

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